Any farming comes with inherent risk and Hemp Farming is undoubtedly no different. Success comes with managing that risk smartly for each situation and with the ultimate goal of profit in mind.
Two possible strategies for landowners, investors, and farmers considering a hemp farming venture are entering a partnership agreement or a contracted to grow.
But which one is right for which situation?
Joint venture, or “JV” agreements, are worth considering for farmers with substantial acreage — typically 100 acres or more — that are interested in foraying into hemp farming but have no prior experience. With all the excitement and interest in industrial hemp, joint ventures have become a standard tool. They can be written up in many ways, but generally, the gist of a JV is a contract between business entities that involve some level of profit-sharing for both.
JV’s can be attractive for new, inexperienced hemp farmers because it allows them to venture into the market place with an experienced partner who is invested in their operations as per the contract. Ideally, both partners will work together to leverage their abilities, assets, and expertise for a profitable return at the harvest.
‘Expertise’ is the crucial point, especially in hemp farming. Hemp farming is new to the American farmscape. Everything from proper seed selection to best-growing practices and appropriate harvest techniques is still being developed. Plus, industrial hemp offers up legal complexities and market challenges that no other federally legal crop must traverse.
This is why new hemp farmers should not enter into a JV agreement with just anybody. Especially when it comes to hemp farming, which has attracted its fair share of predatory business ventures, entering into a partnership with an enthusiastic and well-financed — but clueless — partner is a recipe for disaster. Potential JV partners not well-versed in hemp farming don’t have the experience to understand how to mitigate the risks and won’t be a valuable partner in pulling off a successful growth for a new hemp farmer who needs that expert help.
A good JV partner for farmers interested in a first-time hemp venture are businesses with an already proven background of success in hemp farming and a hemp farming infrastructure and assets they can offer up as part of the negotiations.
The bottom line for new hemp farmers? Make sure to vet any potential JV partners thoroughly.
A contracted to grow is a different beast altogether. Many farmers are familiar with the concept, as it is commonly used in many farming industries. A contracted to grow, or agricultural production contract is an agreement that typically involves the investor paying for the costs of the production but then reaping the benefit when the crop of sold. Agreements typically include a percentage of profit back to the farmer when sold.
For both a farmer and an investor, a successful contracted production grow (not unlike a JV partnership), is predicated on experience and expertise. The advantage of a contracted grow for hemp farmers is, of course, money. Large hemp operations require a significant investment that most farmers don’t possess.
But, it doesn’t matter how much money is on the line, both the farmer and the investor need to make sure they are working from a playing field of knowledge to walk away happy at harvest time.
A lot of hemp farmers in 2019 entered into futures contracts, sometimes with processors but often with middle-men buyers.
These contracts guaranteed a set price for the eventual harvest and offered hemp farmers peace of mind. Unfortunately, many of those contracts went south when the CBD market crashed with overproduction. Or small details, like being one percent off a set CBD percentage, allowed contracted buyers to walk away from the deal leaving hemp farmers with a harvest, but no buyer.
Like everything in hemp, futures contracts are all about vetting legitimate buyers and developing relationships of trust. The fewer middlemen between the farmer and the processor, the less potential places for the deal to break down. Contracts with buyers who have their processing facilities and end-product market streams already developed and actualized eliminate the middleman risk and provide a much more stable relationship to establish.
Before signing a contract, of any kind, especially with a new business partner, is to consult with an attorney.
Many farmers are not used to working in this way, as farmers have for years worked on ‘handshake’ deals. But hemp is a different business model with many risks that don’t come with other crops. Plus, the legal and regulatory structure when it comes to hemp, on both federal and state levels, is still evolving.
Whatever you decide to do, the most important thing is to build up trusted relationships with experienced partners. Whether that is a seed dealer that offers free consulting and growing advice, an experienced JV partner, or a contracted grow agreement between a knowledgeable farmer and realistic investor. Experience – and the history and relationships to prove it – is the name of the game before entering into new partnerships in industrial hemp farming.
For more information on JV partnerships and contracted grows check out the following resources:
Along with selling trusted, low THC hemp seed genetics bred by our in-house breeding team, Colorado Breeder Depot has a JV partnership program for farmers of 100 acres or more. We also partner with investors in contracted grow relationships and bring our years of hemp growing expertise to the table.
And finally, our Breeders Network Buyback Program assures our hemp growers will have a home for their harvested biomass.
Please feel free to reach out for a free consultation and find out how we can build a trusted relationship together. Check out the Colorado Breeder’s Depot website at https://coloradobreedersdepot.com. Email us at Info@ColoradoBreedersDepot.com or call us at (719) 275-7770.